It's always a good day when you check your brokerage account and find you have more shares than you expected. Then the question of how they got there arises, and you search your mind to remember if you were sleepwalking last night and decided to do a little sleep-trading. Relax. Those extra shares came from a forward split in your stock. If you had found fewer shares, it would have been the result of a reverse split, not a midnight decision to sell. Splits don't change the cost basis of your position, but they do change the cost per share.
Gather your trade confirmations for purchases you made to acquire your stock. The confirmations show the number of shares bought, the price per share and the transaction fees, which are commissions and exchange fees that are charged to your stock purchase. The total cost of your stock purchase includes the per-share price plus the transaction fees. This is called the cost basis for your shares and is what you use to figure profits and losses for your taxes. If you use an online broker, check your figures against the number of shares and cost basis shown on your portfolio screen.
You may have purchased stock in the same company on different occasions, so add all the the total costs from your confirmations to find the total cost of the position. If you have an online brokerage account, the stock portfolio screen shows the total number of post-split shares in the position and the total cost of the position. The cost figures shown on your screen include the transaction fees.
Divide the total cost of the position by the total number of shares in the position to find your cost per share. This formula works for both forward splits and reverse splits. In a forward split, your cost per share is lower than before. In a reverse split, your cost per share is higher.
- If you hold your certificates yourself, instead of having them held by your broker, you may receive a stock split notice from the broker or issuing company informing you of the split. If it is a forward split, you will receive an additional certificate for the new shares. Keep both your old certificate and the new one because they are both part of your holding. If your stock went through a reverse split, the notice will give instructions for exchanging your old certificate for a new one with the number of shares you own post split. You may not receive a notice. Periodically check with the transfer agent or the company investor relations department to make sure your records are up to date, particularly if you are thinking of selling your position. This is only necessary if you hold your own certificates.
- Don't mix your account holdings if you have more than one brokerage account. Cost per share must be figured separately on the holdings in each of your accounts.
- Photos.com/PhotoObjects.net/Getty Images